Incidents:

Huahai Qingke released its 2024 mid-year report on August 16:2024H1 achieved revenue of 1.497 billion yuan, up 21.23% year on year; realized net profit of 0.433 billion yuan, up 15.65% year on year; realized net profit deducted from non-mother 0.368 billion yuan, up 19.77% year on year.

Investment highlights:

2024Q2 results showed steady growth. 2024Q2 achieved revenue of 0.816 billion yuan, up 32.03% year on year, up 20.00% month on month; realized net profit of 0.231 billion yuan, up 27.89% year on year and 14.03% month on month; realized net profit without return to mother of 0.197 billion yuan, up 40.01% year on year and 14.42% month on month.

Profitability is generally stable. 2024H1's gross margin was 46.29%, a year-on-year decrease of 0.03pct, and the net margin was 28.91%, a year-on-year decrease of 1.40pct. The 2024H1 company's cost ratio for the period was 21.65%, up 1.17pct year on year, mainly due to increased employee remuneration and additional share payment expenses. Among them, sales expenses were 0.09 billion yuan, up 36.16% year on year; management expenses were 0.082 billion yuan, up 30.08% year on year; R&D expenses were 0.171 billion yuan, up 23.19% year on year; and financial expenses were -0.019 billion yuan. 2024Q2's gross margin was 44.93%, a year-on-year decrease of 1.06 pct, a month-on-month decrease of 2.99 pcts, a net margin of 28.24%, a year-on-year decrease of 0.91 pcts, and a year-on-month decrease of 1.48 pcts.

Cash flow from operating activities increased significantly. The net cash flow from 2024H1's operating activities was 0.372 billion yuan, an increase of 38.55% over the previous year, mainly due to the expansion of the company's business scale and the increase in sales repayments.

As of the end of 2024H1, the company's contract debt was 1.342 billion yuan, up 6.03% year on year; inventory was 3.08 billion yuan, up 40.61% year on year.

The platform-based strategic layout is accelerating, and future growth can be expected. The company has now achieved a “equipment+service” platform-based strategic layout, and 2024H1 has achieved significant growth in revenue from CMP equipment, supporting materials, wafer regeneration, technical services, and wet process equipment. (1) CMP equipment. The CMP machine Universal H300, a new polishing system architecture launched by the company, has been shipped in small batches. Client verification has been smooth. The new model for third-generation semiconductors is being connected to customer needs. It is expected that 2024H2 will be sent to customers for verification. (2) Thinning equipment. The company's 12-inch wafer thinning and coating all-in-one Versatile-GP300 has received batch orders from leading companies in various fields. The 12-inch wafer thinning and laminating machine Versatile-GM300 has been sent to leading domestic sealing and testing companies for verification. It has now completed the localization development of core components such as spindles and porous suction cups, and some have reached mass production conditions. (3) Cutting equipment. The company's 12-inch wafer edge cutting equipment has been sent to many customers for verification. (4) Cleaning equipment. The company's brush cleaning equipment (for 4/6/8 inch compound semiconductors) has been verified by the client, and the chip box cleaning equipment (for 4/6/8 inch compound semiconductors) has been ordered in small quantities. (5) Film thickness measurement equipment. The company's metal process film thickness measurement equipment has now received batch repeat orders from a leading integrated circuit manufacturing company. (6) Key consumables and maintenance services, benefiting from a recovery in consumer electronics demand and an increase in the company's CMP equipment holdings, key consumables and maintenance services are expected to become a new profit growth point.

Advanced packaging contributed to increased demand for equipment, and continued expansion of production capacity helped increase performance. With the rapid development of AI, high-performance computing and other fields, advanced packaging technologies and processes such as Chiplet and HBM will become an important future development direction. As key equipment for advanced packaging technology, the company's products such as CMP equipment and thinning equipment are expected to be more widely used. The “Huahai Qingke Integrated Circuit High-end Equipment R&D and Industrialization Project” has now completed the main structure. It is expected to be completed and accepted by the end of 2024 to carry out R&D and industrialization of equipment such as chemical mechanical polishing equipment, thinning equipment, and wet equipment. The production support project for the chemical mechanical polishing machine project (Tianjin Phase II project) is expected to be completed and accepted by the end of 2024.

Profit forecasting and investment rating companies are leaders in replacing domestic CMP equipment. The platform-based strategy opens up room for growth. We expect the company to achieve revenue of 3.545, 4.713, and 6.063 billion yuan in 2024-2026, and achieve net profit of 1.037, 1.389, and 1.804 billion yuan. The PE corresponding to the current price is 30, 22, and 17 times, respectively, covered for the first time, giving a “buy” rating.

Risks suggest that new product development falls short of expectations; product verification falls short of expectations; downstream customer production expansion progress falls short of expectations; industry competition increases risks.